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01/11 03:11
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Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
The earnings call presents a mixed picture: strong D2C growth and gross margin expansion are offset by weak wholesale revenue, increased SG&A expenses, and adjusted EBIT loss. Q&A insights reveal confidence in DTC momentum but highlight operational risks and lack of clarity in management responses. Given the market cap of $1.27 billion, these factors suggest a neutral short-term stock price reaction, potentially within the -2% to 2% range.
Revenue Revenue for the second quarter was $273 million, 2% higher than $268 million in Q2 of last year, but down 1% on a constant currency basis. D2C revenue was up 21% with sustained strong performance in all our regions and across both stores and e-commerce. Wholesale revenue was down 5%, in line with expectations, and revenue in the 'other' channel totaled $10 million compared to $27 million last year, reflecting an intentional pullback in friends and family events.
Gross Margin Gross margin expanded 110 basis points year-over-year to 62.4%, primarily due to favorable channel mix, more DTC and less revenue in the other channel, partially offset by higher product costs and a higher mix of apparel.
SG&A Expense Reported SG&A expense for the quarter was $188 million, an increase of $25 million or 16% year-over-year. Excluding the quarterly earn-out charge for our knitwear manufacturer, SG&A as a percentage of revenue was 67.6%, up 730 basis points year-over-year, reflecting planned investments in marketing and stores ahead of peak.
Adjusted EBIT Adjusted EBIT was a loss of $14 million for the quarter, which decreased from a profit of $3 million in Q2 last year. This was due to revenue growth and gross margin expansion being offset by planned SG&A growth.
Adjusted Net Loss Adjusted net loss attributable to shareholders was $13 million or $0.14 per share compared to a profit of $5 million or $0.05 per share in Q2 of fiscal '25.
Inventory Inventory was $461 million, down 3% from last year, reflecting stronger consumer demand and tighter inventory management. Inventory turnover was 0.9x, slightly improved compared to the same period last year.
Net Debt Net debt at quarter end was $707 million compared to $826 million in the second quarter of fiscal '25, as net working capital improvements over the past 18 months delivered operating cash flows that led to reduced short-term borrowings.
Revenue from new styles: Revenue from new styles as a percentage of total revenue more than doubled year-over-year, driven by new products in both downfilled and non-downfill categories. This contributed to notable growth in the DTC channel, with revenue from newness now representing roughly 40% of DTC sales for the quarter compared to 10% last year.
Apparel category growth: Apparel remained the fastest-growing category, strengthening year-round relevance and reaching a broader range of consumer lifestyles and environments.
New product collaborations: Launched a collaboration with Canadian basketball player Shai Gilgeous-Alexander, which fused style and heritage, and announced actor Hsu Kuang-han as a global brand ambassador, driving engagement in APAC and Mainland China.
Direct-to-consumer (DTC) sales: DTC comparable sales grew 10% year-over-year, with positive comps in all regions, particularly in the United States and China. DTC revenue was up 21% across stores and e-commerce.
Store network expansion: Opened a new store in Macau and completed two strategic relocations, including a new Paris store on Champs-Élysées, which features an elevated design and strong consumer traffic.
Regional performance: APAC revenue increased 20%, driven by growth in DTC and wholesale channels, with Mainland China and Japan showing strong demand. North America saw low-teen growth in DTC comps, while EMEA had slightly positive comps despite a challenging U.K. market.
Operational efficiency improvements: Closed the largest U.S. warehouse, consolidating shipments to North American retail stores from Canada, reducing overhead costs and simplifying operations.
Inventory management: Inventory was reduced by 3% year-over-year, reflecting stronger consumer demand and tighter management, with improved inventory turnover.
Marketing investments: Increased marketing expenditure to build cultural relevance and brand desirability, focusing on upper funnel activities and a balanced marketing calendar.
Wholesale channel strategy: Focused on elevating brand positioning within the wholesale channel and maintaining healthy inventory levels, resulting in a 5% decline in wholesale revenue, in line with expectations.
Wholesale Revenue Decline: Wholesale revenue was down 5% year-over-year, reflecting challenges in maintaining growth in this channel. This could impact overall revenue stability if not addressed.
SG&A Expense Increase: SG&A expenses increased by 16% year-over-year, driven by investments in marketing and stores. This rise in operational costs could pressure margins if revenue growth does not keep pace.
Regional Revenue Challenges: Revenue in EMEA was down 7% year-over-year, with a challenging consumer environment in the U.K. This indicates potential regional market risks.
Margin Pressure: Margins were pressured in the first half of the year due to deliberate investments in marketing and stores. This could pose risks if these investments do not yield expected returns.
Inventory Management: While inventory levels have improved, the company is still managing a high inventory turnover rate of 0.9x, which could pose risks if consumer demand fluctuates.
Economic Uncertainty in China: Mixed consumer sentiment in Mainland China, despite strong performance, indicates potential risks tied to economic uncertainties in this key market.
Operational Adjustments: The closure of the largest U.S. warehouse and shift to Canadian fulfillment could pose short-term operational risks during the transition period.
Revenue Expectations: The company expects strong performance in the second half of fiscal 2026, driven by positive direct-to-consumer (DTC) comparable sales growth and a focus on peak season execution.
Margin Projections: The company is focused on operating margin expansion in the second half of fiscal 2026, despite lower EBIT dollars and margins in the first half due to planned investments in marketing and stores.
Capital Expenditures: CapEx is expected to remain higher in fiscal 2026 due to the store opening program, with a focus on opportunistic store additions based on demonstrated comp sales growth.
Market Trends: The company anticipates strong consumer demand in North America and APAC, particularly in Mainland China and Japan, despite mixed consumer sentiment in China. EMEA remains challenging, with strong performance on the continent but weaker trends in the U.K.
Business Segment Performance: Direct-to-consumer (DTC) channel is expected to continue its strong performance, supported by store and e-commerce growth. Wholesale revenue is expected to remain stable, with a focus on maintaining healthy inventory positions and elevating brand positioning.
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The earnings call presents a mixed picture: strong D2C growth and gross margin expansion are offset by weak wholesale revenue, increased SG&A expenses, and adjusted EBIT loss. Q&A insights reveal confidence in DTC momentum but highlight operational risks and lack of clarity in management responses. Given the market cap of $1.27 billion, these factors suggest a neutral short-term stock price reaction, potentially within the -2% to 2% range.
The earnings call summary and Q&A reveal a positive outlook with strong financial performance, strategic product development, and effective market strategies, especially in China and APAC. Despite some uncertainties, such as the lack of specific guidance and SG&A growth, the company's focus on innovation, marketing, and store execution is promising. The market cap suggests moderate volatility, leading to a predicted stock price increase of 2% to 8% over the next two weeks.
Despite strong financial results, including record revenue and improved margins, the lack of clear guidance and uncertainty in the consumer environment temper expectations. The absence of a shareholder return plan and concerns over economic factors and competitive pressures further contribute to a neutral sentiment. With a market cap of approximately $1.27 billion, the stock is likely to see a more muted reaction, balancing positive financial performance with cautious future outlook.
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